|
|
|
Japan – The
Gods of Credit Are Smiling?
By
Scott B. MacDonald
While
some of the glow may be coming off of China’s “economic
miracle”, Japan is looking better. The Nikkei is up for the
year, the banks are slowly beginning to lend again and reduce bad
loans, and exports are robust. Equally important, the fundamental
credit story for corporate Japan is finally improving. In the first
three months of 2004, Standard & Poor’s raised its ratings
on seven Japanese corporations and financial institutions and lowered
four, continuing the trend from 2003, the first year in which upgrades
exceeded downgrades since 1990. Equally significant, the number
of upward outlook revisions was 28, compared with only one downward
revision. S&P even changed the outlook on its sovereign rating
(AA) for Japan from negative to stable.
S&P was not alone in indicating improving credit quality for Japan. In
early April Moody’s raised Japan’s sovereign ratings from Aa1 to
Aaa, due to improving economic conditions as well as a rise in foreign exchange
reserves to $770 billion. Later in April Moody’s placed four major Japanese
banks on review for possible upgrades. Fitch also released a Special Report
on Japanese banks, in which it applauded the improving credit quality of the
sector.
Moody’s, Standard & Poor’s and Fitch share a view that Japan
is probably on the right track economically. The key word here is “probably”.
The three agencies fully recognize that the banking sector is making headway
in reducing nonperforming and troubled loans and that the Koizumi reforms are
even trickling down into local government. Yet, they also recognize that problems
remain – ranging from weak public finances, export dependence and a yet
to fully restructure domestic sector.
On April 19 investors were made to remember that despite the improving creditworthiness
of the Japanese corporate world, problems are not far from the surface. It
was revealed in the press that UFJ, the country’s fourth largest bank,
was told by the Financial Services Agency that it needed to set aside an extra
Y300 billion (($2.8 billion) to cover bad loans. This news promptly resulted
in a major sell-off of bank and financial stocks on the Nikkei and raised fears
that other institutions could have similar problems. The problems at UFJ were
followed by the decision of DaimlerChrysler Corp. not to proceed with a bailout
plan of $6.5 billion for Mitsubishi Motor Corps, Japan’s only non-profitable
major automaker. The events at UFJ and Mitsubishi Motor underscore that tough
challenges still remain.
We believe that the Japanese corporate world is making progress. At the same
time, the passage to self-sustainable economic growth cannot be taken for granted.
Significant parts of the economy continue to have substantial problems and
are still dragging their feet over making any meaningful changes. Consequently,
we have a positive outlook for the short-term, but remain cautious about the
medium term. It is easy to forget in good times, that further reforms are still
needed. Without those reforms, the good times will not continue – an
important message for both the government and the private sector.
|
|
|
 |
![[ Clients ]](../../../clients/aha.gif){kind=link}